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Using Public-Private Partnerships to Carry Out Highway Projects

Using Public-Private Partnerships to Carry Out Highway Projects. Congressional Budget Office January 2012. Approaches to Providing Highways. Traditional Approach: Design-Bid-Build Public Sector Financing/ Operations and Maintenance Public Sector Risk Public-Private Partnership (PPP):

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Using Public-Private Partnerships to Carry Out Highway Projects

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  1. Using Public-Private Partnerships to Carry Out Highway Projects Congressional Budget Office January 2012

  2. Approaches to Providing Highways • Traditional Approach: • Design-Bid-Build • Public Sector Financing/ Operations and Maintenance • Public Sector Risk • Public-Private Partnership (PPP): • Variety of Contractual Arrangements • Transfers Greater Risk to Private Sector • Can Include Private Sector Financing/Operations and Maintenance

  3. Public-Private Partnership (PPP) • States Increasingly Authorize PPP • 31 States as of Sept. 2011 (NCSL) • PPP are not common, and PPP with significant risk transfer even less common • 76 projects as of June 2011 • 11 Design-Build-Finance • 10 Design-Build-Finance-Operate-Maintain

  4. Public Sector Goal: • Infrastructure Provided Faster and at Lower Cost by turning project tasks over to private sector • Many PPP studies conclude: • Financing appears more expensive for PPP, as private-sector borrowing rates are higher • Delivery appears slightly less expensive and faster for PPP, primarily due to better risk allocation. • Those conclusions are somewhat accurate but there is more to the story.

  5. Caveats to Private Financing • PPP: Borrowing Cost Reflects Project Risk • The project’s ability to repay that capital determines interest rate • Traditional Approach: Borrowing Cost Reflects Taxpayer Subsidy • The ability of the government to charge taxpayers determines the interest rate, regardless of what happens to the project—taxpayers are on the hook.

  6. Caveats to Private Delivery • Well-written Contracts are Crucial to any PPP. • Some PPP are much more expensive that traditional approach as risk and costs were not well allocated. • PPP grants less control to the public sector. • PPP may not have to adhere to same procedures/processes. • PPP performance varies depending on project size and complexity. • PPP performance had by far highest added value for very large projects (>$100m)

  7. Public-Private Partnerships • PPP are not: • free money (it can provide only financing, not funding) • a magic bullet (many projects are a poor fit) • PPP are: • A useful option for providing some projects. • Dependent on well written contracts

  8. Questions? • Using Public-Private Partnerships to Carry Out Highway Projects • http://www.cbo.gov/sites/default/files/cbofiles/attachments/01-09-PublicPrivatePartnerships.pdf

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